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Yanis Varoufakis has been arguing that Greece should have defaulted because it was insolvent, that it was negligent of the creditor states to lend money to a bankrupt (at penal rates!) and that it was negligent of the Greek government to accept piling more debt on a bankruptcy.

Note that the German "escrow account" basically means that any bailout money has to go to repaying the existing debt before paying for the Greek state service provision. Spain, allegedly under pressure from the powers passed a constitutional amendment along those lines last September:

In fact, most of the provisions of the new Constitutional amendment and impending Organic Law won't take effect immediately. The spending ceiling only becomes binding after 2020 (however, to bring a 9% deficit to 0.40% in 9 years does require reducing it by 1% per year in the middle of a recession, which will require biting austerity with immediate effect). There's only one provision of the proposed New Article 135 (in Spanish) which will have immediate effect:
Los créditos para satisfacer los intereses y el capital de la deuda pública de las Administraciones se entenderán siempre incluidos en el estado de gastos de sus presupuestos y su pago gozará de prioridad absoluta. Estos créditos no podrán ser objeto de enmienda o modificación, mientras se ajusten a las condiciones de la Ley de emisión.
Credits to service interest and principal on the public debt of the various Administrations will be understood to be part of the expense account of their budgets, and their payment will have absolute priority. These credits won't be subject to amendment or modification, as long as they keep to the conditions of the law by which they were issued.
Others will follow suit if the powers have their way.

And the lesson learned is that the powers in Europe have been demanding policy concessions or else horrible things would happen (democracy was at stake!) and then when everything they asked for has been done, horrible things have still happened and democracy is being lost. So another lesson is don't listen to the Barrosos, Trichets, Rehns, Bini-Smaghis, Merkels or Sarkozys of the world.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Tue Feb 14th, 2012 at 11:04:29 AM EST
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